Iconic 175-Year-Old Company Offers Timeless High-Yield Play
A low valuation and big dividend payouts sets up nicely for a time-proven trade idea. Here's how to do it.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
This trade idea is around a very old name. In fact, the company has been around for almost 175 years now. Back 150 years ago, it was on the vanguard of technology. Now most would consider it stodgy and while few use its services anymore, it still has a core niche. In fact, the company is so well known, just by saying its name invokes its yellow and black corporate banner for most - even by those that haven’t used its services in decades.
More importantly, for our purposes, its stock is high yielding and a rare value in an increasingly overbought market. What's more, option liquidity is excellent, providing us with a viable way to enhance the dividend yield while garnering downside protection via a covered call trade.
Our target this week is the venerable Western Union WU. Formed in 1851, the company offers cross-border, cross-currency money transfers in over 200 countries, as well as bill payment and money order services, among others. Western Union’s North American footprint will expand, pending the close of its recently announced acquisition of International Money Express. The company has two operating segments: Consumer Money Transfer (CMT) and Consumer Services.
Consumer Services primarily includes bill payment services in the U.S. and Argentina, as well as money order services. The larger CMT business has approximately 380,000 agent locations conducting in-person transactions, although digital transactions are becoming an increasingly larger portion of its business.
Western Union's CMT revenues have declined markedly since the close of 2021. This has been due to impactful geopolitical events and now the reversal of immigration policies by the new Trump administration. This has already started to hurt remittances to Mexico, which took in over $65 billion from this payment source in 2024. The suspension of services to Russia and Belarus due to the conflict in Ukraine have also been a headwind.
In the second quarter of this year, CMT revenues dropped 8% year-over-year to $885 million, reflecting the headwinds from the crackdown on immigration to the U.S. The Consumer Services business is growing, however. Consumer Services revenues grew 39% to $114 million. Of note, about half that growth was due to a recent small strategic acquisition.
Notably, the stock offers a well-covered just over 11% dividend yield. Western Union earned $1.74 per share in 2024 and paid out quarterly dividends totaling $0.94 cents a share for the year.
Company management has lowered 2025 EPS guidance to $1.70, down from $1.80 previously. That said, with the stock currently trading under $8.50 a share, Western Union is a very cheap play on a P/E basis and one with a large dividend and solid balance sheet.
Option Strategy
Here is how one can initiate a position in WU utilizing a covered call strategy. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Selecting the February $8 call strikes, fashion a covered call order with a net debit in the $7.55 to $7.65 a share range (net stock price - option premium). Liquidity is beyond solid with the options against this equity.
This strategy provides downside protection of 15% over the trade’s duration, which includes two dividend payments of $0.24 a share.
It also provides upside return potential of just over 11%, including dividends, even if the stock trades down 5% over its option duration.
At the time of publication, Jensen was long WU.
